Since I wrote “PM, this can’t be right? 5.9% GDP but 0.4% wage increase?”, I’ve read something that illustrates that it’s the distribution of GDP growth that matters, not GDP growth by itself. Hopefully someone who reads this blog and has personal access to PM will forward to him this extract from an Economistblog:
To see how the distribution of growth affects incomes, imagine a country of just ten people, with one earning $1,000 a month, another earning $2,000 a month, and so on up to the tenth, who earns $10,000 a month. Between them, these ten people earn $55,000 a month. Now suppose that in a year the economy grows by a modest 1.8%, so that there is an extra $1,000 to go around each month.
If the richest person captures all that growth, it will give him a 10% pay boost. But he will hardly feel it, because he is already rich, and the average pay rise across the entire population would be just 1%. But if the poorest resident got all the extra money, his income would double. That would make a huge difference to his life—and the average pay rise in our little country would be a whopping 10%, far higher than the meagre overall growth rate.
In general, the more of the $1,000 that goes to those on lower incomes, the bigger the average pay rise it causes, and the more impact it has. (Emphasis is mine)
What has happened here is that between 2000 and 2011, the earners of the median wage (those only getting 0.4% real wage increases) have not been getting most of the average 5.9% GDP growth. It went to those above the median wage: hence the ever rising COE prices and private property prices. The latter, meant that under Minister Mah HDB prices (remember the land cost) went up affecting the median wage earners, and the poor.
It also meant that increasing GDP via FT inflows was not in effective helping the median wage earner. The benefits of GDP growth went to the above median earners.
Finally what it means is that S’pore can have slower growth that benefits the poorer and median wage S’porean: provided the distribution of GDP growth is tilted towards the below median and median earners, away from the above median earners. Pigs would fly first.
Related post: http://atans1.wordpress.com/2012/08/13/inflation-why-the-misleading-picture-minister-media/
Cynical Investor
*Article first appeared on www.atans1.wordpress.com